Debt, fiscal operations performance Q1 remains strong

Observer Report


The spokesman of the Finance Division said here Tuesday that Debt and fiscal operations data of general government for the Q1 2018 (July-September, 2017) have been finalized. Civil Accounts data of revenue receipts and expenditure of the federal government for Q1 of CFY has been received from the Office of AGPR, financing data from EAD (external financing) and from SBP (bank and non bank) as well as civil accounts containing provincial governments revenue and expenditure have been received from provincial AGs.
The Spokesman added that the deficit figure reported earlier was based on daily cash balance reports of the SBP which did not include financing on account of project aid and financing from National Savings Schemes. The financing from project aid was substantially higher on account of roads and infrastructure. Around 47% of the budget estimates have been received as project aid financing during July-September, 2017 on this account. This has mainly been received during the month of September, 2017. Incremental receipts on account of National Savings Schemes have recently been reported by SBP. The federal government deposits with SBP were also reduced during the month of September, 2017. Therefore, after including the afore mentioned financing data, overall fiscal deficit for the period July-September, 2017 amounted to 1.2% of GDP as against 1.5% to 1.8% of GDP being projected by some writers which is being calculated using wrong assumptions and self-manufactured data.
The spokesman said a section of the media has drawn some premature conclusions on debt performance of the government based on the data for the first two months of the current fiscal year. It is clarified that evaluating debt statistics based on two month numbers is flawed and misrepresentative.
Now that debt numbers from relevant agencies such as Economic Affairs Division, Budget Wing, National Saving and State Bank has been received and consolidated for the first quarter of CFY. It has become quite clear that the increase in public debt is well below the projections that were being made by some critics. The debt statistics at the end of first quarter of 2017-18 clearly depict that:
Provisional Gross Public debt increased by approximately Rs. 652 billion during first quarter of 2017-18 as against Rs.1 trillion reported in various media reports. Domestic debt recorded an increase of Rs.853 billion during first two months of current fiscal year while it settled at Rs.520 billion during first quarter of current fiscal year.
The temporary increase in domestic debt during first two months of current fiscal year was due to timing mismatch between revenue and expenditures and on account of cash buffers built to comfortably meet the bullet maturities.
The increase recorded in the domestic debt during July-August, 2017 was subsequently reversed as the revenue figures picked up and government reduced its cash buffers primarily to retire some of the in-quarter borrowings. Resultantly domestic debt stock was reduced by Rs.333 billion during the month of September 2017. There is a need to understand that seasonality in government borrowings/deposits may be observed during short period of time owing to timing mismatches between the revenue and expenditure streams.
However, it is usually reversed at the end of each quarter. Specifically, any disconnect between borrowing and fiscal deficit financing is reversed on half yearly or annual basis which is a normal practice throughout the world and Pakistan is no exception; It is worth noting that out of gross increase in domestic debt amounting Rs.520 billion, net increase in domestic debt was recorded at Rs.428 billion while the rest of the increase went to increase the liquid assets of the government that could be used in the subsequent period towards meeting government’s financing requirement/contingencies; Similarly, external public debt recorded a provisional increase of approximately Rs. 132 billion which was predominantly driven by transactional losses on account of appreciation of international currencies against US Dollar and depreciation of Pak Rupee against US Dollar.
Therefore, incremental mobilization from external sources was almost negligible during first quarter of current fiscal year. Details of fiscal operations of the Federal Government as well as the debt statistics for Q1 of CFY show strong fiscal performance and prudent expenditure management.
On one hand, revenue collection especially tax revenue collection registered a strong growth of over 20 percent during Q1 of the CFY while on the other hand, government borrowings both domestic and external were kept under check. In addition, there were expenditure controls as well. This reflects on the prudent fiscal management during Q1 of CFY and government’s resolve to maintain this momentum in the remaining quarters of the year.

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